Transcripts

Oil Supplies Drop & Oil Prices Jump

SUSIE GHARIB: A sharp drop in U.S. oil inventories triggered a jump in oil prices today. Crude oil futures gained $0.26 a barrel to close at $63.72, although prices did trade above $64 for the first time since September. As Suzanne Pratt reports, the latest supply data raises new questions about the future of oil prices.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers can blame Mother Nature this time for higher oil prices. Dense fog has closed shipping lanes along the Gulf of Mexico, forcing refiners to draw on inventories. As a result, according to government data, stockpiles of oil fell 6.3 million barrels in the week ended Friday. Not only did that exceed analysts' expectations, but it follows another draw down the week before. Experts say price gains in the oil pits were mitigated, however, as traders factored in the first increase in distillate inventories in 11 weeks. Stockpiles of gasoline also rose. Oil trader Bill Wallace says prices ultimately held fairly steady because the news was somewhat expected.

WILLIAM WALLACE, OIL TRADER, MAN FINANCIAL: I think those shipping problems are going to clear up. And if you look at the way the board is trading now, it says the market is not worried about crude supplies. The stocks are still pretty ample.

PRATT: The foggy situation comes at a time when much of the U.S. is experiencing fairly mild winter weather. That has recently eased demand and

some experts say despite the latest inventory numbers, there is evidence that demand growth in the U.S. appears to be in the midst of a longer-term slow down. ISI oil analyst Mike Rothman say it's the demand side of the equation that the market should focus on.

MIKE ROTHMAN, HEAD OF INTEGRATED OIL RESEARCH, ISI: If you look at where demand should be especially versus last year, which had been impacted because of hurricanes Katrina and Rita, things look a lot softer than you would have expected. And this is actually a problem that we're starting to see with the global numbers.

PRATT: Still, experts believe demand will increase in the coming months, as they bet Mother Nature will ultimately blast the northeast with winter temperatures. That could lift crude prices in the New Year, but few expect oil to revisit old highs.

ROTHMAN: For the most part, I think the highs are in. You'd have to have some sort of significant geopolitical disturbance and supply loss I think to put in new highs for crude.

PRATT: Experts say today's inventory numbers serve as a reminder that the oil market is always vulnerable to supply shocks. And some believe the fog, which has yet to clear, will also be a factor in next week's data. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.